In re: Julie Renee Butler

Filing 4

MEMORANDUM OPINION AND ORDER the motion for temporary stay is denied; directing that the civil and miscellaneous actions are consolidated; the civil action is designated as the lead action; all further filings to be captioned and docketed in th is case, Civil Action No. 2:13-9261; granting the motion to stay; the bankruptcy adversary proceeding is stayed pending disposition of the instant appeal; the parties are directed to submit a stipulation of factual and procedural development or, in the alternative, advise the court that the foregoing recitation in section I suffices for that purpose, by 6/10/2013; and a briefing schedule is established as follows: (a) Vanderbilt's brief due by 6/26/2013; (b) Ms. Butler's response brief due by 7/17/2013; and (c) Vanderbilt's reply due by 8/1/2013. Signed by Judge John T. Copenhaver, Jr. on 5/14/2013. (cc: attys; any unrepresented parties) (taq)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF WEST VIRGINIA
AT CHARLESTON
IN RE JULIE RENEE BUTLER
Debtor.

Bankruptcy No. 11-20818

VANDERBILT MORTGAGE AND FINANCE, INC.,
Appellant,
v.

Civil Action No. 2:13-9261
(Adversary No. 2:12-2026)
Lead Action

JULIE RENEE BUTLER,
Appellee.
VANDERBILT MORTGAGE AND FINANCE, INC.,
Petitioner,
v.

Misc. Action No. 2:13-0048
(Adversary No. 2:12-2026)
Consolidated Action

JULIE RENEE BUTLER,
Respondent.
MEMORANDUM OPINION AND ORDER
Pending are the motions (1) to stay adversary
proceeding pending appeal ("motion to stay"), and (2) to
temporarily stay the same proceeding pending a determination of
the motion to stay ("motion for temporary stay"), filed April
16, 2013.

Inasmuch as the court will address the motion to stay,
it is ORDERED that the motion for temporary stay be, and hereby
is, denied.

It is further ORDERED that the above-styled civil

and miscellaneous actions be, and hereby are, consolidated.
civil action is designated as the lead action.

The

All further

filings shall be captioned and docketed in that case.

I.

On November 28, 2011, appellee Julie Renee Butler
petitioned for Chapter 13 relief.

On December 23, 2011, she

filed her proposed Chapter 13 plan.

Under the Class Four

section of the form Chapter 13 plan, she moved to value a
manufactured home, and apparently the lot upon which it sat.
The manufactured home was financed by Oakwood Acceptance
Corporation, LLC, and the servicer was Vanderbilt Mortgage and
Finance, Inc. ("Vanderbilt").

Ms. Butler valued the

manufactured home at $18,846.82 and the real estate at
$5,000.00, for a total of $23,846.82.
Ms. Butler listed the amount owed, apparently on the
manufactured home alone, at $59,400.00, a balance that she

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reflected as "disputed."1

(Prop. Plan at 6).

On December 23,

2011, the bankruptcy court ordered Ms. Butler to begin making
the proposed monthly Chapter 13 plan payment of $633.00 to the
trustee, a portion of which was designed to amortize, with
interest, the $23,846.82 valuation she placed upon the
manufactured home.
On January 25, 2012, Vanderbilt objected to
confirmation.

It asserted that the payoff on the debt owed was,

in actuality, $60,388.40.

On February 7, 2012, the Chapter 13

trustee, Helen M. Morris, recommended rejection of the proposed
plan.

She cited a host of reasons, one of which was

Vanderbilt's pending objection to confirmation.
On May 14, 2012, the trustee moved to dismiss the case
arising out of Ms. Butler's failure to make plan payments.

The

trustee disclosed that Ms. Butler's last payment, in the amount
of $1,000, was made on February 27, 2012, and that she was then
in arrears in the sum of $2,165.

On May 16, 2012, the trustee

reiterated her recommendation that the proposed plan be
rejected.

In addition to other reasons, the trustee noted that

"The Plan provided that an AP would be filed against Vanderbilt.
No AP has been filed."
1

(Trustee Recomm. at 1).

The obligation appears to have arisen from an August 23,
2002, promissory note in the amount of $57,058.94 executed by
Ms. Butler. In May 2011, Ms. Butler defaulted on the debt.
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On May 23, 2012, Ms. Butler instituted the promised
adversary proceeding.

She alleged generally that Vanderbilt had

engaged in predatory lending.

The complaint asserted that the

action was a core proceeding and stated claims for (1)
unconscionable inducement to enter into the promissory note,
including the failure to provide loan documents in advance of
closing and that the loan had unfair and unexplained terms, (2)
abusive debt collection practices in servicing the loan, (3)
intentional infliction of emotional distress, and (4) invasion
of privacy.
The same day, the bankruptcy court sustained the
trustee's and Vanderbilt's objections to Ms. Butler's proposed
plan.

Ms. Butler was ordered to file an amended proposed plan

on or before June 21, 2012.

On June 12, 2012, the amended

proposed plan was filed.
On July 2, 2012, Vanderbilt moved to compel
arbitration and stay the adversary proceeding.
2012, Ms. Butler filed an amended complaint.

On July 11,
She added a fifth

claim for relief, alleging unconscionability of the arbitration
agreement contained within the loan documents.

On July 18,

2012, the trustee objected to confirmation of the amended
proposed plan and recommended dismissal of the case.
asserted as follows:
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She

The debtor is delinquent in plan payments to the
trustee on the Chapter 13 plan and is in default in
the amount of $3,431.00. The Trustee filed a motion to
dismiss for failure to maintain payments on May 14,
2012. The plan is so delinquent that consideration on
the merits of the plan is unnecessary. A hearing on
the motion to dismiss is scheduled for September 26,
2012. The debtor has made no payments since February
2012.
(Trustee Recomm. at 1).

On July 30, 2012, the bankruptcy court

denied confirmation of the amended proposed plan and directed
Ms. Butler to file a second amended proposed plan on or before
August 29, 2012.
On July 30, 2012, Vanderbilt moved to dismiss the
amended complaint in the adversary proceeding.

It asserted,

inter alia, that the Federal Arbitration Act ("FAA") preempted
the newly added fifth claim for relief.
On August 28, 2012, Ms. Butler filed a second amended
proposed plan.

On October 4, 2012, the trustee objected to

confirmation.

She noted, inter alia, that the second amended

plan failed to state a plan payment amount or the plan length.
A separate document filed the same day entitled "Trustee's
Recommendation Regarding Confirmation" provides the following
reasons for recommending against confirmation:
1

The debtor is NOT current on plan payments. The
default is in the amount of $3,747.50 excluding
the October 2012 payment. The Trustee cannot
recommend confirmation with payments in default.
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2

The following are issues that need to be resolved
prior to confirmation:
- Objection by Vanderbilt Mortgage

3

The plan proposes an A.P. or an A.P. is pending
and confirmation would be premature prior to the
conclusion of the A.P.

(Trustee's Recomm. at 1).
On August 30, 2012, the bankruptcy court held a
hearing on Vanderbilt’s motions to compel arbitration and to
dismiss.

On September 18, 2012, the bankruptcy court entered a

one-page order denying the motions and, additionally, striking
them from the docket.

On October 2, 2012, Vanderbilt noticed an

appeal and moved the bankruptcy court to stay the adversary
proceeding pending the appeal.

Within the notice of appeal,

Vanderbilt alternatively sought leave to appeal pursuant to,
inter alia, 28 U.S.C. § 158(a), which provides that an appeal
may be taken "with leave of the court, from . . . [certain]
interlocutory orders and decrees[.]"

Id.

On October 17, 2012, Ms. Butler filed a third proposed
amended plan.

The payments for the third proposed amended plan,

payable over 36 months, totaled $37,980, well over half of which
consisted of the Vanderbilt claim.

On November 15, 2012, she

filed a second amended complaint.

The second amended complaint

confined Ms. Butler's claims to (1) a contract defense of
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unconscionablity aimed at Vanderbilt's proof of claim and lien,
and (2) her claim regarding the unconscionability of the
arbitration clause.

On November 16, 2012, Ms. Butler formally

objected in the main case to Vanderbilt's claim, essentially
incorporating the allegations of the second amended complaint.
On November 20, 2012, the trustee noticed the
bankruptcy court that her recommendation as to the second
amended proposed plan applied with equal force to the third
amended proposed plan.

That same day, the bankruptcy court

entered an order (1) permitting the filing of the second amended
complaint, (2) allowing further briefing respecting
arbitrability as to the second amended complaint, (3) setting
aside its September 18, 2012, order denying and striking Vanderbilt's
motions to compel and dismiss, and (4) treating certain filings,
including the notice of appeal, as moot.
On December 4, 2012, Vanderbilt moved to compel
arbitration of the claims found in the second amended complaint.
On December 21, 2012, the bankruptcy court combined Ms. Butler's
objection to Vanderbilt's claim with Ms. Butler's claims in the
adversary proceeding.

It noted "that the claim objection rises

or falls on the Debtor's litigation against Vanderbilt . . . ."
(Ord. at 1).

On January 22, 2013, the trustee moved anew to

dismiss the main case based upon Ms. Butler's failure to make
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plan payments, noting a payment arrearage at the time of
$4,380.50.
On February 4, 2012, based upon its reading of In re
White Mountain Mining Co., L.L.C., 403 F.3d 164 (4th Cir. 2005),
the bankruptcy court denied Vanderbilt's renewed motion to
compel arbitration, stating, inter alia, as follows:
Plaintiff's claims in her adversary proceeding are
raised in objection to the validity and amount of
Vanderbilt's proof of claim against the estate and
directly impact confirmation of the Chapter 13 plan,
which is delayed pending resolution of the adversary
proceeding. As a result, these claims are core to the
bankruptcy estate and stem from the bankruptcy itself.
See 28 U.S.C. § 157(b)(2)(A), (B), (C), (K), Stern,
131 S. Ct. at 2618. Because Plaintiff's adversary
proceeding necessarily must be resolved as part of the
bankruptcy, there is an "inherent conflict between
arbitration and the purposes of the Bankruptcy Code,"
White Mountain, 403 F.3d at 170. As a result,
arbitration is not appropriate, and the Defendant's
motion is hereby denied.
(Feb. 4 Ord. at 3-4).

On February 18, 2013, Vanderbilt noticed

an appeal, again alternatively seeking leave to appeal pursuant
to section 158(a)(3).

Vanderbilt simultaneously moved in the

bankruptcy court for a stay of the adversary proceeding pending
appeal.
On April 1, 2013, Ms. Butler served written discovery
requests upon Vanderbilt, the responses to which would have been
due on May 6, 2013.

The February 18, 2013, notice of appeal
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having not been transmitted, Vanderbilt instituted the abovecaptioned miscellaneous action on April 16, 2013, which was
followed by Vanderbilt filing the instant motion to stay and
motion for temporary stay.2

On April 26, 2013, the February 18,

2013, notice of appeal filed in the bankruptcy court was
transmitted to the district court following inquiry by the
district court Clerk's office.
On April 8, 2013, the bankruptcy court denied the
motion to stay pending appeal then pending before it.

On April

22, 2013, the bankruptcy court additionally entered a scheduling
order setting deadlines, inter alia, as follows:
Discovery deadline

June 5, 2013

Summary judgment deadline

July 5, 2013

Trial

August 13, 2013
On April 29, 2013, the bankruptcy court concluded the

motion to dismiss the main case was moot based upon Ms. Butler's
filing of a request for entry of an amended wage order.
2

The

On April 18, 2013, Vanderbilt moved in the miscellaneous
case to shorten the briefing schedule and for expedited
consideration ("motion for expedited consideration") of the
instant motion for temporary stay. The briefing respecting the
motion for expedited consideration ripened on April 25, 2013.
On April 26, 2013, the court denied the motion for expedited
consideration and ordered Ms. Butler to respond to the motion to
stay and motion for temporary stay on or before May 6, 2013,
with any reply filed by May 13, 2013. The court stated further
that it would "promptly address the two stay requests following
the conclusion of the briefing thereon." (Ord. at 1).
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bankruptcy court additionally directed that a status hearing
would be held in the main case in four months to assess its
progress.
On May 2, 2013, Vanderbilt petitioned for a writ of
mandamus in the court of appeals.

It asserted that the April

26, 2013, district court order denying its motion for expedited
consideration of its motion to stay and motion for temporary
stay warranted the extraordinary relief sought.

It additionally

moved the court of appeals for an emergency stay of all
proceedings pending a decision on the writ of mandamus or the
undersigned's ruling on the motion to stay and motion for
temporary stay ("emergency stay motion").

The next day, May 3,

2013, the court of appeals denied the emergency stay motion.

On

May 7, 2013, the parties jointly moved to withdraw the petition
for a writ of mandamus.

Vanderbilt sought leave to refile the

same if the district court denied its motion to stay.

The court

of appeals granted the motion the same day.

Also on May 7, 2013, the parties jointly moved the
bankruptcy court to amend its scheduling order in the adversary
proceeding.

On May 9, 2013, the joint motion was granted.

The

revised schedule, inter alia, moves the discovery deadline to
July 5, 2013, and the filing of dispositive motions to July 15,
2013.

The parties additionally stipulated in their joint motion
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that they will not engage in further discovery in the adversary
proceeding prior to the earlier of June 5, 2013, or an order by
this court denying Vanderbilt's motion for stay and motion for
temporary stay.
II.
The appeals provision of the Federal Arbitration Act,
found in 9 U.S.C. § 16(a)(1)(A) and (B), provides as follows:
(a) An appeal may be taken from-(1) an order-(A) refusing a stay of any action
under section 3 of this title,
[and]
(B) denying a petition under
section 4 of this title to order
arbitration to proceed,
9 U.S.C. § 16(a)(1)(A) and (B).

In Levin v. Alms and

Associates, Inc., 634 F.3d 260 (4th Cir. 2011), our court of
appeals observed as follows respecting the continuation of
proceedings in the district court upon an appeal of its decision
denying arbitrabitility:
The core subject of an arbitrability appeal is the
challenged continuation of proceedings before the
district court on the underlying claims. Therefore,
because the district court lacks jurisdiction over
“those aspects of the case involved in the appeal,” it
must necessarily lack jurisdiction over the
continuation of any proceedings relating to the claims
at issue. That the present case involves only the
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continuation of discovery does not change that
rationale. Discovery is a vital part of the litigation
process and permitting discovery constitutes
permitting the continuation of the litigation, over
which the district court lacks jurisdiction.
Furthermore, allowing discovery to proceed would cut
against the efficiency and cost-saving purposes of
arbitration. Also, allowing discovery to proceed
could alter the nature of the dispute significantly by
requiring parties to disclose sensitive information
that could have a bearing on the resolution of the
matter. If we later hold that the claims were indeed
subject to mandatory arbitration, the parties will not
be able to unring any bell rung by discovery, and they
will be forced to endure the consequences of
litigation discovery in the arbitration process.
Id. at 264-65 (citations omitted).

Based in part on this

analysis, the court of appeals concluded as follows:
We . . . hold that an appeal on the issue of
arbitrability automatically divests the district court
of jurisdiction over the underlying claims and
requires a stay of the action, unless the district
court certifies the appeal as frivolous or forfeited.
In the event that such certification occurs, the party
alleging arbitrability may move this court to stay the
district court proceedings pending a review of the
frivolousness determination. Given that the district
court here specifically held that the appeal was not
frivolous, a stay of the action during the pendency of
this appeal was required.
Id. at 266.
The bankruptcy court made no finding or certification
of frivolousness in its April 8, 2013, order denying a stay
pending appeal.

Based upon the decision in Levin, it is ORDERED

as follows:

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1.

That the motion to stay be, and hereby is, granted;

2.

That the bankruptcy adversary proceeding be, and
hereby is, stayed pending disposition of the instant
appeal;

3.

That the parties be, and hereby are, directed to
submit no later than June 10, 2013, a stipulation of
factual and procedural development or, in the
alternative, advise the court that the foregoing
recitation in section I suffices for that purpose; and

4.

That a briefing schedule be, and hereby is,
established as follows: (a) Vanderbilt's brief due on
or before June 26, 2013; (b) Ms. Butler's response
brief due on or before July 17, 2013; and (c)
Vanderbilt's reply due on or before August 1, 2013.
The Clerk is directed to forward a copy of this

written opinion and order to all counsel of record and any
unrepresented parties.
ENTER: May 14, 2013
John T. Copenhaver, Jr.
United States District Judge

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